Detailed advice is now available for people who want to know whether current contracts will be affected by the proposed anti-avoidance legislation on the provision of services through intermediaries such as personal service companies.

People currently working through service companies whose contracts extend beyond 6 April, when the new rules are intended to become law, may seek an opinion from the Inland Revenue.

Guidance on how to decide whether legislation will apply to particular contracts is published today in the Tax Bulletin and on the Internet. This has been discussed in detail with interested parties, including representatives of the accountancy profession and IT contractors.

Paymaster General, Dawn Primarolo, said:
“People have asked for certainty about the application of the legislation. The guidance which the Inland Revenue have issued, especially the advice on standard contracts, should allow many people to decide for themselves whether they will be affected. The Inland Revenue will provide advice to people who are still uncertain about their position.”


1. Because many service company workers in the IT industry are engaged through agencies on standard contract terms, the Inland Revenue have given specific advice on these standard contracts. The contracts require the worker to :
– work
– where the client requests,
– for an agreed number of hours per week,
– at an agreed rate of pay,
– keep a timesheet checked by the client,
– be subject to the direction of the client, and
– not sub-contract their work to anyone else.

2. Where these contract terms apply, and the engagement is for a month or more, the Inland Revenue’s view is that the proposed legislation will apply, unless the worker can demonstrate a recent history of work including engagements which have the characteristics of self-employment. Where the contract is for less than a month, then, although the engagement may still have been one of employment, the status position will be considered on a case by case basis.

Details of the tax and NICs consequences, where the legislation does apply, were announced in September 1999, and can be found on the Inland Revenue website at


3. Intermediaries such as service companies can be set up to provide the services of a single worker to a client in circumstances where, if it were not for the service company, the worker would be an employee of the client. The use of service companies in this way allows the client to make payments to the company rather than the individual, without deducting PAYE or NICs

4. The worker can then take the money out of the service company in the form of dividends instead of salary. Dividends are not liable to NICs so the worker can pay less in NICs than either a conventional employee or a self-employed person. The individual thus gains an unfair advantage over other employees. There are also tax advantages.

5. The proposed legislation will remove these tax and NICs advantages. The provision will rely on the existing tests, used to determine a worker’s employment status, in deciding whether a worker in a service company is subject to the new rules. These tests, which have been established by the Courts, determine whether an individual should be treated for tax purposes as employed or self-employed.

6. The tests are based on factors which most people would recognise, such as whether the individual invests in his business, risks his capital, or provides substantial equipment and materials, on the one hand, or on the other whether he works a fixed number of hours, on another’s premises, under the direction of a manager. No single factor is conclusive: each engagement has to be looked at in the light of all the facts.


7. To help workers decide whether they would have been an employee if engaged directly by the client, the Inland Revenue has today published detailed guidance in the February edition of the Tax Bulletin and placed it on their website. Prior to publication, the Inland Revenue consulted on the guidance with representative bodies, including representatives of the IT contracting industry. The guidance takes account of standard contracts common in these industries (which point clearly to employee status). This should mean that most service company workers can easily tell whether their contracts are caught by the legislation or not.

8. If a worker, having read the guidance, is still not sure whether or not an existing contract, which continues beyond 6 April 2000, is subject to the new rules, they can seek an opinion from the Inland Revenue. Requests can be made by post or fax, to the following address:
Penhaligon House
Trinity Street
St Austell
Cornwall PL25 5BA

Fax: 0845-302-3535

For post or fax enquiries, a copy of the contract will need to be sent together with any relevant information, such as details of any recent history of work engagements which have the characteristics of self-employment. The worker should also provide his National Insurance number, the company’s Inland Revenue reference number and the company’s postcode. Workers in the TV and Radio field should put `TV’ instead of the postcode. Workers in the film industry should replace postcode with `FILM’.

Telephone: 0845-303-3535.

Unless we have seen a copy, we are unable to give opinions about individual contracts over the telephone.

The Inland Revenue will be making available an e-mail service, details of which can be found on the Inland Revenue website.

9. The Inland Revenue will aim to reply to any requests for advice within 28 days of receiving all the details or by the 5 April, whichever is later.


Tax Bulletin can be found on the Inland Revenue website. For information about Tax Bulletin subscriptions or distribution contact Miss S. Williams, Room 530, 22 Kingsway, WC2B 6NR. Telephone number 0171 438 7700.

For paper copies of the IR35 article in the Tax Bulletin please write to Laraine Brandebury, Room 19, New Wing, Somerset House, Strand, London WC2R 1LB.

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